How to Calculate Prepared Food Sales Percentages

Example 4

Giant
Food Store, Inc. is a large grocery store. In addition Giant Food Store also
has a deli and bakery and a “you–make–it” salad bar onsite. The deli has
utensils (i.e. napkins, lids, plastic ware, straws, etc.) on their counters for
customer use. Previously, Giant Food Store had segregated their sales and not
charged retail sales tax on exempt food items. Deli items could be purchased at
the deli counter or paid for at the checkout stand. Bakery items and other food
items can only be paid for at the checkout stand. Giant Food Store decides they
would like to see if they can continue to segregate their sales and not have to
charge sales tax on all food items.

In
2007, Giant Food Store, Inc. made the following sales. (Since Giant Food Store
has a deli on their site (same entity) they must include the sales of the
grocery store and the sales of the deli when making this calculation.)

Deli Sales:

Hamburgers/cheeseburgers

$100,000

Deli
sandwiches

$300,000

Hot wings

$200,000

Chicken
strips

$100,000

Potato salad
(sold in containers by weight)

$75,000

Jo Jo’s

$55,000

Burritos

$75,000

Fruit salad
(sold in containers by weight)

$45,000

4-Bean salad
(sold in containers by weight)

$20,000

French fries

$35,000

Onion rings

$15,000

Fountain
drinks (soda pop)

$300,000

Bottled
water

$10,000

Bottled
juice (more than 50% juice)

$10,000

Coffee

$92,500

Sealed milk

$12,000

Hot apple
pie (by the slice, served on a plate)

$15,000

Chocolate
cake (by the slice)

$20,000

Meat (sliced
and repackaged by the deli)

$30,000

Cheese
(sliced and repackaged by the deli)

$25,000

Meat and
cheese platter

$50,000

Combo meal
#1 (cheese burger, french fries, soft drinks)

$135,000

Combo meal
#2 (chicken strips, Jo Jo’s, soft drink)

$75,000

Bakery Items Sales:

Donuts

$75,000

Box of
donuts (12)

$40,000

Whole pies

$75,000

Whole cakes

$80,000

Bagels

$50,000

Grocery Store Sales:

Spices (food
ingredient)

$30,000

Exempt food
items

$3,285,300

Alcoholic
beverages (beer and wine)

$350,000

Sealed soft
drinks (soda pop)

$400,000

Tobacco

$175,000

Cough drops

$25,000

Gum and
candy

$300,000

Ice (cubed)

$30,000

Ice (block)

$15,000

Dietary
supplements

$45,000

Salad bar
sales

$135,000

(Giant Food Stores
does not combine any of the food items. The customer makes his own salad in a styrofoam
to-go container.)

Ms.
Wilson, their CPA, is preparing their annual calculation to evaluate whether
Giant Food Stores Inc. predominately sells prepared foods. In making this
evaluation, she must determine whether 75 percent or more of their sales are
considered prepared foods. Her calculation follows:

Step 1

Calculate the Numerator

Numerator: The numerator includes the following items
(items are to be counted only once in the numerator, even if they could
qualify under more than one classification):

1. All foods sold in a heated state:

Hamburgers/cheeseburgers

$100,000

Hot wings

$200,000

Chicken
strips

$100,000

Jo Jo’s

$55,000

Burritos

$75,000

French fries

$35,000

Onion rings

$15,000

Coffee

$92,500

Note:

Although the apple pie is served heated, it is not included in
this portion of the calculation because it is a bakery item.

2. Combined foods (all foods where the seller combines two
or more ingredients)

Deli
sandwiches

$300,000

Fountain
drinks (soda pop)

$300,000

Combo meal
#1 (cheese burger, French fries, soft drinks)

$135,000

Combo meal
#2 (chicken strips, Jo Jo’s, soft drink)

$75,000

Notes:

Although the salads (potato, 4-bean, and fruit) are made with
two or more ingredients, they are exempt from this calculation,
because they are sold by volume or weight.

Although the cakes, pies, bagels, and donuts are made
with two or more ingredients, they are exempt from this calculation
because they are considered bakery items.

3. Foods sold where a utensil is necessary
to receive the food.

Hot apple
pie (by the slice)

$15,000

Cake by the
slice

$20,000

Salad bar
sales

$135,000

Notes:

The salad bar sales are included in this calculation, even
though the store does not combine the ingredients. The styrofoam
container is considered a necessary utensil to receive the food.

Even though the hot apple pie and cake by the slice
are both bakery items, they are included because they are served with a
utensil (plate).

Step 2

Calculate the Denominator

Denominator: The
denominator includes food, food ingredients, prepared food, soft drinks, and
dietary supplements. (Items are to be counted only once in the denominator,
even if they qualify under more than one classification.)

4. Dietary supplements:

Although the store made the following sales, these sales are not
part of the calculation:

Beer and wine – $350,000 (Alcoholic beverages are not
considered food items and therefore are not part of the
calculation.)

Tobacco – $175,000 (Tobacco products are not considered
food items and therefore are not considered part of
the calculation.)

Cough drops – $25,000 (Medicines and hygiene products are not
considered food items and therefore are not part of
the calculation.)

Ice
(block) – $15,000 (Block and dry ice are not considered food items and
therefore are not part of the calculation.)

Step 3

Calculate the Percentage

The
percentage of prepared food sales is determined by dividing the numerator
(n) by the denominator (d). In this
example the calculation would be:

n

= percentage

$1,652,500

= .261 or 26.1 percent

d

$6,339,800

Step 4

Determination

Giant
Food Store’s percentage of prepared food sales in 2007 was less than 75
percent. Therefore, they are not classified as predominately selling prepared
food. During 2008, the store may segregate its sales and is not required to
collect retail sales tax on exempt food items (food and food ingredients).

Even
though Giant Food Stores is not required to collect sales tax on all food
items, the following items would remain subject to retail sales tax: